Is Donald Trump making Europe great again?

Time is running out for American and European trade negotiators working to cut a tariff deal before a July 9 deadline set by US President Donald Trump.

So far, it remains unclear whether or not Trump's threat of imposing a 50% levy on nearly all European Union imports will materialize — a move that could escalate the dispute into a full-blown transatlantic trade war.

Given Trump's erratic trade policy, global investors have grown increasingly wary of the US economy — and at the same time, are beginning to turn their attention toward Europe, especially Germany, the continent's largest economy.

While the American S&P 500 stock market index has seen big ups and downs since Trump became US president in January, Germany's blue-chip DAX index has risen steadily, and is up more than 15% now.

In addition, the US dollar has lost 10% of its value against the euro, with the British pound and the Swiss franc also rising against the US currency.

IMF and Germany's Bundesbank sound the alarm

Joachim Nagel, the president of Germany's central bank, the Bundesbank, cautioned about fresh turbulence in global financial markets if the trade conflict with the US isn't resolved.

Speaking at a May 14 event in Madrid, Nagel said that "disruptive" was the word that jumped to his mind as he listened to  Trump's April 2 announcement of sweeping "reciprocal tariffs" on many countries, adding the move caused a global-stock slump and a weakening dollar that brought financial markets "close to a meltdown."

Trump's ' Liberation Day' tariffs announcement on April 2 massively dampened investor confidence in the US economyImage: Brendan Smialowski/AFP

The International Monetary Fund (IMF) already sees "signs of strain" in the US economy amid Trump's policies, warning in its April 2025 Fiscal Monitor that US debt could spiral out of control. 

In an interview in May, IMF's First Deputy Managing Director Gita Gopinath told the Financial Times that the US's budget deficits were "too large" and that Washington needed to address its "ever-increasing" debt burden.

According to the US Treasury Department, America is now saddled with over $36 trillion (€31.6 trillion) in debt — more than 120% of its GDP as of last year and nearly twice Germany's debt-to-GDP ratio. In 2025, the US's budget deficit is expected to exceed 6.5%, adding to the debt burden.

Growing skepticism toward the US

German economist Hans-Werner Sinn sees little room left for the US to continue on its current fiscal path.

"The Americans need to tighten their belts. This lifestyle, this world of endless malls and few factories, can't be sustained indefinitely," the former president of the ifo Institute in Munich told DW.

Tesla CEO Elon Musk was tasked with reducing the US federal deficit, but left the White House in May with only limited successImage: Molly Riley/IMAGO

Ralph Ossa, chief economist at the World Trade Organization (WTO), shares the view that Washington needs to reduce its trade deficit with the EU and the rest of the world. But like most economists, he sees tariffs as a misguided tool to achieve that.

"From an economic standpoint, there's a broad consensus that tariffs are not the right instrument to address trade deficits," he told DW.

Ossa likens the US strategy to a person who spends more than they earn and accumulates debt. "If I, Ralph, have a debt problem — because I buy too many cars, for example — then one way to tackle it is to tax the cars so I buy fewer. But that's obviously not the most direct way to address the issue."

Sentiment 'completely shifted'

Stefan Wintels, CEO of Germany's state-owned development bank, KfW, believes Donald Trump's aggressive trade and tariff policies have spooked investors and driven them to reassess Europe.

"During my roadshows in New York, London, and Zurich, I see rising interest from international investors in Germany as a location. Many institutional investors are overexposed in the US and want to invest more in Europe, especially in Germany," Wintels said in a recent interview with German business daily Handelsblatt.

In just a few months, sentiment toward Europe and Germany among global investors has "completely shifted," he said, adding: "In over 30 years in this business, I've never seen such a rapid change in investor mood. We must do everything we can to harness this momentum for Germany and Europe."

Answering Europe's call

Even global financial heavyweights like US investment firm Blackstone are being drawn to Europe. The company's CEO, Steve Schwarzman, has announced plans to invest up to $500 billion in the continent over the next decade.

In an era of geopolitical volatility, Europe is becoming increasingly attractive to investors — thanks in part to Germany's multi-billion-dollar infrastructure and defense investment packages that were adopted by parliament in March.

"We see a major opportunity here," Schwarzman told Bloomberg TV in early June. "They're changing their approach, which we believe will lead to higher growth rates."

The European Commission has also acknowledged the need to strengthen the EU's single market of nearly 450 million consumers.

In response to global trade tensions, the EU Commission is preparing to tackle what it calls the "ten biggest obstacles" to internal EU trade.

According to a leaked strategy paper obtained by German media platform Table Briefings, "all it takes to make up for a 20% fall in the goods exports to the US, is a 2.4% increase in intra-EU goods trade."

One key plank in the strategy is cutting the EU's massive bureaucracy to the benefit of particularly small and medium-sized enterprises, making it easier for them to operate across borders within the EU.

Germany, the investment gateway to Europe

There's also growing consensus in Brussels that the pace of free trade agreements with countries like India and Indonesia needs to accelerate. Negotiating over decades — as happened with the Mercosur trade deal with Latin America — is no longer viable.

Germany's DAX reached an all time high in June, reflecting growing investor confidence in Germany and Europe as a wholeImage: Arne Dedert/dpa/picture alliance

But already now, Europe, and particularly Germany, is reaping the benefits of investors' heightened awareness.

The so-called SuperReturn International conference held annually in Berlin, drew thousands of top investors this year, including from pension funds, insurers, and sovereign wealth funds managing around €46 trillion ($53.2 trillion) in assets.

Touted as the world's largest private equity and venture capital conference, the event attracted representatives from firms like BC Partners, Permira, and Brookfield Asset Management, for example, who all showed an interest in Europe as an investment destination.

New York-based Apollo Global Management — already managing about $100 billion of its $800 billion portfolio in Europe — said it intends to focus even more heavily on Germany over the next decade.

"We see in this country [Germany] alone the opportunity to put $100 billion in the ground in the next decade," Apollo President Jim Zelter told the Financial Times, adding that this is "a number that would be hard to match around the globe."

This article was originally written in German.